Powered by
Sponsored by

Loan moratorium: Waiver of complete interest not possible, rules SC

Apex court refused to interfere with RBI's loan moratorium policy


The Supreme Court on Tuesday refused to interfere with the government and the RBI's loan moratorium policy, and declined to extend the six-month loan moratorium period. The apex court said the waiver of complete interest was not possible because they had to pay interest to depositors like account holders and pensioners. 

In a relief to borrowers, the Supreme Court Tuesday directed that no compound or penal interest be charged during the six-month loan moratorium period announced last year amid the COVID-19 pandemic and the amount already charged shall be refunded, credited or adjusted.

The bench said it cannot strike down a policy decision merely at the behest of petitioners on grounds that the other view is possible and the other decision could be more beneficial.

While refusing to go into the financial policy decision taken by the government, the bench said it is not open for the court to embark upon judicial review of policy decision merely at the behest of petitioners.

It said that complete waiver of interest is not possible as it will have huge financial implications.

A bench comprising Justices D.Y. Chandrachud, M.R. Shah and Sanjiv Khanna pronounced the judgment on a batch of pleas filed by various trade associations, including from real estate and power sectors, seeking extension of loan moratorium and other reliefs in view of the COVID-19 pandemic.

A bench headed by Justice Ashok Bhushan had reserved its verdict on the batch of pleas on December 17, last year.

The Centre had earlier submitted before the top court that if it were to consider waiving interest on all the loans and advances to all categories of borrowers for the six-month moratorium period announced by RBI in view of COVID-19 pandemic, then the amount foregone would be more than Rs 6 lakh crore.

If the banks were to bear this burden, then it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the lenders unviable and raising a very serious question mark over their very survival, it had said.

The government said this was a main reason as to why waiver of interest was not even contemplated and only payment of instalments was deferred.

Giving an illustration, it had said that in case of State Bank of India alone (which is the largest bank in the country), waiver of six months' interest would completely wipe out over half of the bank's net worth which has accumulated over nearly 65 years of its existence.

It had pointed out the sector-specific relief measures taken by the government for the small and mid-sized business/MSMEs including from sectors such as restaurants and hotels.

The Centre has promulgated emergency credit-linked guarantee scheme (ECLGS) of Rs 3 lakh crore providing additional credit at lower rate of interest, with 100 per cent government guarantee and no fresh collateral, it had said.

The scheme has been extended with higher financial limits to twenty seven COVID-19 impacted sectors including restaurant and hotel sectors, it had said.

On November 27 last year, the top court had asked the Centre to ensure that all steps be taken to implement its decision to forego interest on eight specified categories of loans paid up to Rs 2 crore in view of the coronavirus pandemic.

The apex court had noted that the moratorium period as granted by the Reserve Bank of India continued from March 3 to August 31, six months.

It had said the COVID-19 pandemic has not only caused serious threat to the health of the people but has also cast its shadow on the economic growth of the country as well as other countries in the entire world.

The eight categories of loans are MSME (Micro, Small & Medium Enterprises), Education, Housing, Consumer durable, Credit card, Automobile, Personal and Consumption.

The RBI had on March 27 issued the circular which allowed lending institutions to grant a moratorium on payment of instalments of term loans falling due between March 1 and May 31, 2020, due to the pandemic. Later, the moratorium was extended till August 31, 2020.

(With PTI inputs)

📣 The Week is now on Telegram. Click here to join our channel (@TheWeekmagazine) and stay updated with the latest headlines